Quest Diagnostics 2000 Annual Report Download

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Giving
Results,
2000 Annual Report

Table of contents

  • Page 1
    Giving Results, 2000 Annual Report

  • Page 2
    ..., Accountability, Collaboration, Leadership About Quest Diagnostics Quest Diagnostics is the nation's leading provider of diagnostic testing, information and services with over $3.4 billion in annual revenues. We provide information that enables health care professionals and consumers to make...

  • Page 3
    Getting Results...Financial Highlights Years Ended December 31 (in millions, except per share data) 2000 1999 % increase Net revenues Net income* Net income per diluted share* Cash earnings per diluted share* EBITDA* * Before extraordinary loss and special items. $3,421 106.2 $2.25 $3.12 459.4 ...

  • Page 4
    ... to diagnostic testing services through our network of full-service laboratories, rapid response labs and conveniently located patient service centers across the United States and in Mexico and the United Kingdom. Nichols Institute, our world-renowned specialty-testing laboratory and research and...

  • Page 5
    ... for directly managing their own health. They want to order tests and receive relevant information about their own health, and are willing to pay for it directly. We are poised to extend our leadership position into these important new growth segments. The Undisputed Leader in Health Care Insights...

  • Page 6
    Quality Results Patricia Roache Specimen Technician Quest Diagnostics Stephen Stadler Manager of Laboratory Services Thomas Jefferson University Hospital Philadelphia, Pennsylvania Quality isn't optional at Thomas Jefferson University Hospital and other leading academic medical centers - it is at ...

  • Page 7
    ...uncompromising quality - error free, on time, every time. We do that by dedicating ourselves to the relentless pursuit of excellence in the services we provide. We intend to differentiate Quest Diagnostics from the competition based on undisputed quality leadership, and Six Sigma Quality is the way...

  • Page 8
    ... Lazarus, M.D. HIV Primary Care Physician New York, New York Jaymee Soliman Client Service Representative Quest Diagnostics We communicate constantly with our customers. If there is a problem, the doctor needs to be informed promptly. As a primary care physician treating patients with HIV, Dr. Tadd...

  • Page 9
    ... a supplier. As the industry leader, we have a responsibility to communicate about problems - regardless of who is at fault - and then work closely with our customers and suppliers to resolve them. If there is any question about a previously issued test result, we retest patients - at our expense...

  • Page 10
    ... Quest Diagnostics Nichols Institute In 2000, Thomas Merigan, M.D., Director of the Center for AIDS Research at Stanford University, and scientists at our Nichols Institute identified a new mutation of HIV-1 that is associated with reduced susceptibility to antiviral drugs, giving physicians...

  • Page 11
    ...like Dr. Merigan, at leading institutions. Together we apply new technologies to diagnostic testing and make them widely available. Nichols Institute is our world-renowned esoteric testing laboratory and research and development center. Gene-based testing promises new information to improve a doctor...

  • Page 12
    ... from recent surgery, to the Quest Diagnostics patient service center in Colorado Springs to have his blood drawn. Becky Carpenter, an experienced phlebotomist, collected the specimen painlessly, and also recognized that Patrick was jaundiced. Becky expedited the testing, getting results to...

  • Page 13
    ... located walk-in patient service centers like Becky's in Colorado Springs, where patients can have specimens collected. Our more than 3,000 professional couriers transport more than 100 million unique patient specimens each year to our laboratories from thousands of doctors' offices, clinics...

  • Page 14
    ...M.D., a Denver internist, can now review information about her patients in her office, her home or at the hospital. Thanks to an innovative partnership between Quest Diagnostics and MedPlus, a software developer, information previously dispersed in the offices of specialists, hospitals, radiologists...

  • Page 15
    ... vital information that is helping them improve their patients' health. We collaborate with hospitals and integrated health systems to improve quality, speed results delivery, and yield cost savings. For example, at Columbia - St. Mary's in Milwaukee, Quest Diagnostics employees operate the labs of...

  • Page 16
    Leadership Results Surya Mohapatra, Ph.D. President and Chief Operating Officer Quest Diagnostics Charles Berg President and Chief Operating Officer Oxford Health Plans Trumbull, Connecticut When Oxford Health Plans needed to provide its managed care plan members with laboratory testing services,...

  • Page 17
    .... We will provide growth opportunities for our employees, quality services and products to our customers and superior returns to our shareholders. Leadership is about taking a stand, forging a new path and persuading others to follow. Quest Diagnostics leads our industry in many important ways. We...

  • Page 18
    ...; Seton Health Corporation of Central Indiana National Imaging Associates San Juan Capistrano, California Nichols Institute Diagnostics Quest Diagnostics Clinical Trials QuestDirect Quest Informatics International Locations (35%) Hackensack, New Jersey CompuNet Clinical Laboratories Senior Fellow...

  • Page 19
    ... STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 2000 Commission File Number 1-12215 Quest Diagnostics Incorporated One Malcolm Avenue, Teterboro, NJ...

  • Page 20

  • Page 21
    ...offices are located at One Malcolm Avenue, Teterboro, New Jersey 07608, telephone number: (201) 393-5000. The United States Clinical Laboratory Testing Market Clinical laboratory testing is an essential element in the delivery of quality healthcare services. Physicians use laboratory tests to assist...

  • Page 22
    ... ordering of clinical testing by providers as managed care organizations impose fewer controls on providers and patients. Business Strategy Our mission is to be recognized by our customers and employees as the best provider of comprehensive and innovative diagnostic testing, information and related...

  • Page 23
    ... the growth in the areas of genomics and specialty testing, expanding into the direct-to-consumer market by providing testing and medical information services directly to consumers, leveraging our leading anatomic pathology business into higher margin areas and expanding our clinical trials testing...

  • Page 24
    ... sale of diagnostic test systems, and from fees charged to customers, such as managed care organizations and pharmaceutical companies, for information products derived from clinical laboratory data. We derive approximately 2% of our net revenues from foreign operations. Routine Testing Routine tests...

  • Page 25
    ...1998, Nichols Institute, located in San Juan Capistrano, California, became the first clinical laboratory in North America to achieve ISO-9001 certification. As a result of the SBCL acquisition, we acquired SBCL's National Esoteric Testing Center, located in Van Nuys, California. We have transferred...

  • Page 26
    ... who pays the bill for the patient, such as an insurance company, Medicare or Medicaid. Some states, including New York, New Jersey and Rhode Island, prohibit us from billing physician clients. We generally consider a "customer" to be the party who refers tests to us. We also consider a managed care...

  • Page 27
    ... as % of Total Clinical Laboratory Revenues 5% - 10% 10% - 15% 25% - 30% 40% - 45% 5% - 10% Patient ...Medicare and Medicaid...Physicians, Hospitals, Employers and Other Monthly-Billed Payers ...Third Party Fee-for-Service ...Managed Care-Capitated...Customers Physicians Requisition Volume as % of...

  • Page 28
    .... We also manage the laboratories at a number of other hospitals. Employers, Governmental Institutions and Other Clinical Laboratories We provide testing services to governmental agencies, including the Department of Defense and state and federal prison systems, and to large employers. We believe...

  • Page 29
    ... testing. Customer service representatives perform a number of services for patients and customers. They monitor services, answer questions and help resolve problems. Our couriers pick up specimens from most clients daily. Strategic Growth Opportunities In addition to expanding our core clinical...

  • Page 30
    ... web site will be integral to the awareness and delivery of information content surrounding the testing services provided in our facilities. Laws in a number of states restrict the ability of consumers to order tests directly and permit test results to be provided only to the ordering physician...

  • Page 31
    ... of customers across all spectrums. Billing Billing for laboratory services is complicated. Laboratories must bill various payers, such as patients, insurance companies, Medicare, Medicaid, doctors and employer groups, all of which have different requirements. Additionally, auditing for compliance...

  • Page 32
    ... and transportation of patient specimens, as well as the precision and accuracy of analysis and result reporting. Our quality assurance efforts focus on proficiency testing, process audits, statistical process control and personnel training for all of our laboratories and patient service centers. We...

  • Page 33
    ... Accreditation includes on-site inspections and participation in the CAP (or equivalent) proficiency testing program. Regulation of Clinical Laboratory Operations The clinical laboratory industry is subject to significant federal and state regulation, including inspections and audits by governmental...

  • Page 34
    ... on continued participation in the Medicare and Medicaid programs, because many clients may want a single laboratory to perform all of their clinical laboratory testing services, regardless of whether reimbursements are ultimately made by themselves, Medicare, Medicaid or other payers. Billing and...

  • Page 35
    ...In addition, state Medicaid programs are prohibited from paying more (and in most instances, pay significantly less) than Medicare. Major clinical laboratories, including Quest Diagnostics, typically use two fee schedules: • "Client" fees charged to physicians, hospitals, and institutions to which...

  • Page 36
    ... generally permitted to bill patients for clinical laboratory tests that Medicare does not pay for due to "medical necessity" limitations (these tests include limited coverage tests for which a carrier-approved diagnosis code is not provided by the ordering physician) if the patient signs an advance...

  • Page 37
    ... investment and compensation arrangements with physicians who refer other than governmentreimbursed laboratory testing to us. We cannot predict if some of the state laws will be interpreted contrary to our practices. Government Investigations and Related Claims Quest Diagnostics and SBCL have each...

  • Page 38
    ... property insurance programs (subject to maximum limits and self-insured retentions) for claims that could result from providing or failing to provide clinical laboratory testing services, including inaccurate testing results and other exposures. Management believes that present insurance coverage...

  • Page 39
    ... Reimbursement for Clinical Laboratory Services" and "Business - Payers and Customers - Customers - Managed Care Organizations." (d) The impact upon our volume and collected revenue or general or administrative expenses resulting from our compliance with Medicare and Medicaid administrative policies...

  • Page 40
    ... certification or other license for any of Quest Diagnostics' clinical laboratories under the CLIA standards, by HCFA for Medicare and Medicaid programs or other federal, state and local agencies. See "Business - Regulation of Clinical Laboratory Operations." (j) Adverse publicity and news coverage...

  • Page 41
    ... (2) Tampa, Florida Atlanta, Georgia Chicago, Illinois (2) Indianapolis, Indiana Lexington, Kentucky New Orleans, Louisiana Baltimore, Maryland Boston, Massachusetts Detroit, Michigan St. Louis, Missouri Lincoln, Nebraska New York, New York (Teterboro, New Jersey) Long Island, New York Oklahoma City...

  • Page 42
    ...'s Common Stock and Related Stockholder Matters Our common stock is listed and traded on the New York Stock Exchange under the symbol "DGX." The following table sets forth, for the periods indicated, the high and low sales price per share as reported on the New York Stock Exchange Consolidated...

  • Page 43
    ...a variety of human resources positions for SmithKline Beecham's pharmaceutical and clinical laboratory businesses, most recently serving as Vice President and Director of Human Resources-Operations for SBCL. Mr. Bevan was appointed Corporate Vice President for Human Resource Strategy and Development...

  • Page 44
    ..., Mr. Prevoznik was with Dechert Price & Rhodes. In 1996, he became Vice President and Chief Legal Compliance Officer for SmithKline Beecham Healthcare Services. In 1998, he was appointed Vice President, Compliance for SmithKline Beecham, assuming additional responsibilities for coordinating all...

  • Page 45
    ... (filed as an Exhibit to the Company's proxy statement for the 2000 annual meeting of shareholders and incorporated herein by reference) Amended and Restated By-Laws of the Registrant Form of Rights Agreement dated December 31, 1996 (the "Rights Agreement") between Corning Clinical Laboratories Inc...

  • Page 46
    ... reference) Form of Variable Compensation Plan (filed as an Exhibit to the Company's Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by reference) Stock and Asset Purchase Agreement dated as of February 9, 1999 among SmithKline Beecham plc, SmithKline Beecham Corporation...

  • Page 47
    ... Credit and Security Agreement dated as of July 21, 2000 among Quest Diagnostics Receivables Inc., as Borrower, the Company as Initial Servicer, each of the Lenders party thereto and Wachovia Bank, N.A., as Administrative Agent (filed as an exhibit to the Company's quarterly report on Form 10-Q for...

  • Page 48
    ... caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Quest Diagnostics Incorporated By /s/ Kenneth W. Freeman Kenneth W. Freeman Chairman of the Board and Chief Executive Officer March 14, 2001 By /s/ Robert A. Hagemann Robert A. Hagemann Corporate Vice...

  • Page 49
    ... financial data is only a summary and should be read together with the audited consolidated financial statements and related notes of our company and management's discussion and analysis of financial condition and results of operations included elsewhere in this Annual Report on Form 10-K. 29

  • Page 50
    ...21.72) Balance Sheet Data (at end of year): Accounts receivable, net ...$ 485,573 Total assets...2,864,536 Long-term debt...760,705 Preferred stock ...1,000 Common stockholders' equity...1,030,795 Other Data: Net cash provided by (used in) operating activities...$ 369,455 Net cash used in investing...

  • Page 51
    ..., respectively, related to the Company's consolidation of its laboratory network announced in the fourth quarter of 1997. Adjusted EBITDA is presented and discussed because management believes that Adjusted EBITDA is a useful adjunct to net income and other measurements under accounting principles...

  • Page 52
    ... of consumers to pay for tests that may not be covered by third party payers. Quest Diagnostics, as the largest clinical laboratory testing company with a leading position in most of its geographic markets and service offerings, is well positioned to benefit from the renewed growth expected...

  • Page 53
    ... and testing specimens. Selling, general and administrative expenses consist principally of the costs associated with our sales force, billing operations (including bad debt expense), and general management and administrative support. Acquisition of SmithKline Beecham's Clinical Laboratory Testing...

  • Page 54
    ...our national network to provide more local testing and improve customer service. We are not exiting any geographic markets as a result of the plan. Employee groups to be impacted as a result of these actions include those involved in the collection and testing of specimens, as well as administrative...

  • Page 55
    ... our unaudited pro forma combined results of operations for the year ended December 31, 1999 (in thousands, except per share data): Year Ended December 31, Historical 2000 Net revenues...Costs and expenses: Cost of services ...Selling, general and administrative ...Interest, net ...Amortization of...

  • Page 56
    ...of testing performed by third parties under the contract with Oxford Health. On a full year basis, these changes to the laboratory network management agreements will reduce net revenues and cost of services by approximately $150 million. Net Revenues Net revenues for the year ended December 31, 2000...

  • Page 57
    ... no future economic benefit as a result of combining the operations of SBCL and Quest Diagnostics. The reduction in employee severance costs was primarily attributable to higher than anticipated volume growth and higher than expected voluntary turnover, which reduced the number of planned severances...

  • Page 58
    .... Of the total special charge recorded in the fourth quarter of 1999, $36.4 million represented costs related to planned integration activities affecting Quest Diagnostics' operations and employees. Of these costs, $23.4 million related to employee severance costs, $9.7 million related primarily to...

  • Page 59
    ...as an indicator of cash flows or as a measure of liquidity. Adjusted EBITDA for 2000 improved to $459.4 million, or 13.4% of net revenues from $237.0 million, or 11.2% of net revenues, excluding the impact of testing performed by third parties under our laboratory network management arrangements, in...

  • Page 60
    ... due to Quest Diagnostics' processes in the billing area, most notably the processes around the collection of diagnosis, patient and insurance information necessary to effectively bill for services performed. While the sharing of internal best practices has begun in the billing functions, management...

  • Page 61
    ... of our laboratory network announced in the fourth quarter of 1997. Adjusted EBITDA is presented and discussed because management believes that Adjusted EBITDA is a useful adjunct to net income and other measurements under accounting principles generally accepted in the United States since it...

  • Page 62
    ..., book overdrafts related to the disbursement accounts were offset against cash balances in the concentration accounts for reporting purposes. During the second quarter of 2000, we moved our primary concentration account to another financial institution such that no offset exists. As a result, book...

  • Page 63
    ... by Corning and SmithKline Beecham against monetary fines, penalties or losses from outstanding government and other related claims, will provide sufficient financial flexibility to integrate the operations of Quest Diagnostics and SBCL, to meet seasonal working capital requirements and...

  • Page 64
    ... broad range of medical information products to help providers and insurers better manage their patients' health. We plan to pursue profitable growth opportunities, including: direct contracting with employers for laboratory services; clinical trials testing for pharmaceutical companies; testing for...

  • Page 65
    ... with finalizing the purchase price adjustment with SmithKline Beecham, Quest Diagnostics filed a current report on Form 8-K on October 31, 2000 with the Securities and Exchange Commission to revise and update certain pro forma combined financial information previously reported by the Company (1) to...

  • Page 66
    ...of testing performed by third parties under the contract with Oxford Health. On a full year basis, these changes to the laboratory network management agreements will reduce net revenues and cost of services by approximately $150 million. Net Revenues Net revenues for the year ended December 31, 2000...

  • Page 67
    ... that contributed to the increase in average revenue per requisition included modifications to various managed care contracts, an increase in higher value testing, and a shift to greater fee-for-service reimbursement. Operating Costs and Expenses Total operating costs for the year ended December 31...

  • Page 68
    ... provision in the results of SBCL to reflect a customer contract as a loss contract. Of the total special charge recorded in the third quarter of 1999, $19.8 million represented stock-based employee compensation of which $17.8 million related to special one-time grants of our common stock to certain...

  • Page 69
    ...of net revenues, excluding the impact of the testing performed by third parties under our laboratory network management arrangements and the loss contract, in the prior year period. The increase in Adjusted EBITDA was primarily related to improvements in the operating performance of the Company. 49

  • Page 70
    ... independent accountants and the internal auditors meet with the Audit and Finance Committee, without management present, to review the results of their audits and their assessment of the adequacy of the system of internal accounting controls and the quality of financial reporting. The consolidated...

  • Page 71
    ... position of Quest Diagnostics Incorporated and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States...

  • Page 72
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 and 1999 (in thousands, except per share data) 2000 Assets Current assets: Cash and cash equivalents ...Accounts receivable, net of allowance of $120,358 and $121,550 at December 31, 2000 and 1999, ...

  • Page 73
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (in thousands, except per share data) 2000 1999 1998 Net revenues ...Costs and expenses: Cost of services ...Selling, general and administrative ...Interest,...

  • Page 74
    ...of income ...Stock compensation expense...Other, net...Changes in operating assets and liabilities: Accounts receivable...Accounts payable and accrued expenses...Integration, settlement and special charges...Other assets and liabilities, net ...Net cash provided by operating activities ...Cash flows...

  • Page 75
    ...2000, 1999 AND 1998 (in thousands) Common Stock Balance, December 31, 1997 Net income Other comprehensive loss Comprehensive income Preferred dividends declared Purchase of treasury stock (687 shares) Issuance of common stock under benefit plans (255 common shares and 473 treasury shares) Adjustment...

  • Page 76
    ... the Company's national network of laboratories and patient service centers, and its leading esoteric testing laboratory and development facility known as Nichols Institute, Quest Diagnostics offers comprehensive and innovative diagnostic testing, information and related services used by physicians...

  • Page 77
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands unless otherwise indicated) Taxes on Income The Company uses the asset and liability approach to account for income taxes. Under this method, deferred tax assets and ...

  • Page 78
    .... Capitalized costs include external direct costs of materials and services consumed in developing or obtaining internal-use software, payroll and payroll related costs for employees who are directly associated with and who devote time to the internal-use software project and interest costs incurred...

  • Page 79
    ... information regarding comparable publicly-traded companies in the industry, but also consider (i) the financial projections of each regional laboratory, (ii) the future prospects of each regional laboratory, including its growth opportunities, managed care concentration and likely operational...

  • Page 80
    ...'s results of operations or its financial position. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable and accrued expenses approximate fair value based on the short maturity of these instruments. At December 31, 2000 and...

  • Page 81
    ... agreements, Quest Diagnostics acquired SmithKline Beecham's clinical laboratory testing business including its domestic and foreign clinical testing operations, clinical trials testing, corporate health services, and laboratory information products businesses. SmithKline Beecham's national testing...

  • Page 82
    ... with finalizing the purchase price adjustment with SmithKline Beecham, Quest Diagnostics filed a current report on Form 8-K on October 31, 2000 with the Securities and Exchange Commission to revise and update certain pro forma combined financial information previously reported by the Company (1) to...

  • Page 83
    ..., Miami, New York and Philadelphia. The Company is also transferring esoteric testing performed at SBCL's National Esoteric Testing Center in Van Nuys, California to Nichols Institute. Employee groups to be impacted as a result of these actions include those involved in the collection and testing of...

  • Page 84
    ... reductions in accruals for employee severance benefits and costs to exit leased facilities. This reduction in accruals was offset by a charge to write-off fixed assets used in the operations of Quest Diagnostics. During 2000, the Company determined that the total number of employees expected to be...

  • Page 85
    ... Company's accruals for restructuring costs associated with the planned integration of SBCL affecting Quest Diagnostics' operations and employees (in millions): 1999 Provision ...Amounts utilized in 1999...Balance at December 31, 1999 ...Amounts utilized in 2000...Adjustment to accruals...Balance...

  • Page 86
    ... of the federal statutory rate to the Company's effective tax rate for 2000, 1999 and 1998 was as follows: 2000 Tax provision (benefit) at statutory rate...State and local income taxes, net of federal benefit Non-deductible goodwill amortization ...Impact of foreign operations ...Non-deductible...

  • Page 87
    ...the Company terminated one of its laboratory network management agreements with a customer which resulted in a reduction in accounts receivable and a corresponding decrease in accrued expenses of approximately $69 million, neither reduction having a cash impact. 2000 Business acquired: Fair value of...

  • Page 88
    ... due to changes in the plan as a result of the SBCL integration. No material accruals, related to prior restructuring plans, existed at December 31, 2000. 8. EXTRAORDINARY LOSS Extraordinary losses were recorded in 2000 and 1999 representing the write-off of deferred financing costs associated with...

  • Page 89
    ... ...Customer lists ...Other (principally non-compete agreements) ...Less: accumulated amortization...Total ...11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses at December 31, 2000 and 1999 consisted of the following: 2000 Accrued expenses ...Accrued wages and benefits...

  • Page 90
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands unless otherwise indicated) Long-term debt at December 31, 2000 and 1999 consisted of the following: 2000 Senior secured variable rate bank term loans: Term loan, payable ...

  • Page 91
    ...ability to pay cash dividends on all classes of stock based, primarily, on a percentage of the Company's earnings, as defined in the Indenture. Additionally, the Company will be required to offer to purchase the Notes and repay amounts borrowed under the Credit Agreement upon a change of control, as...

  • Page 92
    ... with the sale of an investment during the fourth quarter of 1999. The market value adjustment for 2000 represented unrealized holding losses, net of taxes, of $2.3 million. 14. STOCK OWNERSHIP AND COMPENSATION PLANS Employee and Non-employee Directors Stock Ownership Programs In conjunction...

  • Page 93
    ... Plan for Non-employee Directors (the "Director Option Plan"). The Director Option Plan provides for the grant to non-employee directors of non-qualified stock options to purchase shares of Quest Diagnostics' common stock at no less than fair market value on the date of grant. The maximum number...

  • Page 94
    ... of Quest Diagnostics' common stock which had been issued for the account of all active regular employees of the Company as of December 31, 1996. Effective with the closing of the SBCL acquisition, the Company modified certain provisions of the ESOP to provide an additional benefit to employees...

  • Page 95
    .... 16. RELATED PARTY TRANSACTIONS As part of the SBCL acquisition agreements, SmithKline Beecham and Quest Diagnostics entered into the following agreements: a long term contract under which Quest Diagnostics is the primary provider of testing to support SmithKline Beecham's clinical trials testing...

  • Page 96
    ... acquisition agreements, SmithKline Beecham has agreed to indemnify Quest Diagnostics, on an after tax basis, against certain matters primarily related to taxes and billing and professional liability claims (see Note 17). At December 31, 2000 and 1999, net amounts due from SmithKline Beecham totaled...

  • Page 97
    ... of Nichols Institute. In April 1998, the Company entered into a settlement agreement with the U.S. Attorney's Office in Baltimore for approximately $7 million related to the billing of certain tests performed for which the Company had incomplete or missing order forms from the physician. The...

  • Page 98
    ... of SBCL for services provided prior to the closing of the SBCL acquisition. Amounts due from SmithKline Beecham at December 31, 2000 related to indemnified billing, professional liability and other claims discussed above, totaled approximately $58 million and represented management's best estimate...

  • Page 99
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands unless otherwise indicated) Investments in subsidiaries are accounted for by the parent on the equity method for purposes of the supplemental consolidating presentation. ...

  • Page 100
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (dollars in thousands unless otherwise indicated) Condensed Consolidating Balance Sheet December 31, 2000 Subsidiary Guarantors Non-Guarantor Subsidiaries Parent Assets Current assets: Cash and ...

  • Page 101
    ... indicated) Condensed Consolidating Statement of Operations For the Year Ended December 31, 2000 Subsidiary Guarantors $ 2,773,568 NonGuarantor Subsidiaries $ 274,987 Net revenues ...Costs and expenses: Cost of services ...Selling, general and administrative ...Interest, net...Amortization of...

  • Page 102
    ...: Net income ...$ 102,052 Extraordinary loss, net of taxes...223 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization...30,447 Provision for doubtful accounts...14,333 Provisions for restructuring and other special charges...2,594...

  • Page 103
    ...) ...$ 26,885 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization...31,749 Provision for doubtful accounts ...48,246 Other, net ...29,691 Changes in operating assets and liabilities ...(9,672) Net cash provided by (used in...

  • Page 104
    ... of 2000 represented $4.8 million ($2.9 million, net of tax) of deferred financing costs which were written-off in connection with the prepayment of the term loans (see Note 8). (c) On August 16, 1999, Quest Diagnostics completed the acquisition of SBCL. The quarterly operating results include...

  • Page 105
    QUEST DIAGNOSTICS INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION ACCOUNTS AND RESERVES (in thousands) Balance at 1-1-00 Year ended December 31, 2000 Doubtful accounts and allowances ...$ 121,550 Provision for Doubtful Accounts $ 234,694 Net Deductions and Other $ 235,886 Balance at 12-31-...

  • Page 106

  • Page 107
    ...charge by contacting the Investor Relations Department. Internet Access Corporate news releases, our Annual Report, Forms 10-K and 10-Q and other information about the company are available through the Quest Diagnostics web site on the Internet: www.questdiagnostics.com Transfer Agent and Registrar...

  • Page 108
    Quest Diagnostics One Malcolm Avenue Teterboro, NJ 07608 www.questdiagnostics.com MI0734